International Airlines Group held its annual Capital Markets Day today, Friday 2 November 2018.

If you are so inclined, you can download the whole presentation of no less than 174 slides from the IAG website.

IAG prides itself of the consistency of its strategy, so there are no major surprises. The general theme is of IAG airlines consolidating their positions at their respective hubs, investing in profitable growth, and operational efficiencies.

IAG is pursuing stronger airline brand differentiation

IAG has always distinguished itself as being a group with a portfolio of distinct brands, with operational independence.

Its brands to date have largely been defined by the geographic location of their respective hubs.

There seems to be more emphasis on brand differentiation and relative strength. This does not mean IAG will be changing its very disciplined approach to cost and investment. But there is a clear acknowledgement that in the current market, its brands can’t be everything to everyone.

BA and Iberia are the designated premium brands. Aer Lingus and Iberia Express are deemed “value carriers”. And Vueling and LEVEL are the low cost airlines.

It is noteworthy for an internal research exercise where IAG has identified 7 different market segments, there are some sections of the market where easyJet and Norwegian are positioned above BA in terms of perception. For example, BA is positioned below easyJet in the short-haul “Smooth Flying” segment and below Norwegian in the “Business on a Budget” segment.

International Airlines Group Capital Markets Day (Image Credit: International Airlines Group)International Airlines Group Capital Markets Day (Image Credit: International Airlines Group)

In previous Capital Markets Days IAG has referred to knowing where it “stretch the [BA] brand” and where “the breaking points are”. It seems clear these have been tested in recent years.

With 1-2 cabins, it is far easier for easyJet and Norwegian to position themselves. For an airline with the network and number of cabins it has, BA needs broad appeal across price sensitive and premium business and leisure passengers. However, it seems clear that BA, and Iberia, will pursue sharper premium positioning in the market,

IAG is increasing its growth plans

Subject to market conditions, there are ambitions to grow IAG’s fleet from 386 short-haul aircraft this year to 467 in 2023. Long-haul aircraft are expected to increase from 201 this year to 249 in 2023.

International Airlines Group Capital Markets Day (Image Credit: International Airlines Group)International Airlines Group Capital Markets Day (Image Credit: International Airlines Group)

Taking into account existing aircraft orders and planned retirements, IAG will need to exercise options or place new orders for 128 short-haul aircraft and 44 long-haul aircraft for delivery by 2023.

For BA alone, it plans to retire 36 Boeing 747s by 2024, and future deliveries of 16 Airbus A350-1000 and 12 Boeing 787-10 aircraft are not enough to replace these.

Given IAG plans to add increase long-haul aircraft by 16 in 2020 and 13 in 2021, we could be very many new routes announced by IAG airlines in the next 12 months.

In terms of major developments by airline:

Aer Lingus

As is expected, Aer Lingus is focused on growing its North American route network from Dublin, principally with the aid of the Airbus A321 Long Range aircraft.

The first 3 of 14 aircraft will be delivered in 2019.

Aer Lingus confirmed that it will introduce a new brand identity and staff uniforms. It will also reintroduce a form of short-haul business class “Aer Space” on some routes. This was planned before it was acquired by IAG, but had been put on the back burner.

Whilst Aer Lingus referred to successful partnerships with Alaska Airlines and JetBlue there is no sign of it imminently joining the transatlantic joint-venture with American Airlines or BA. It is still awaiting regulatory approval. There is also no date on it rejoining Oneworld. Given its relative strength in the US local market, it seems keen to preserve its relative independence and “value carrier” status.

One idea that may be trialled on Aer Lingus is an “on-demand” restaurant style dining where customers can pre-order food items on their personal devices.

British Airways

The overarching theme is getting BA ready for its centenary celebrations in 2019 and ensuring its putting its best foot forward.

Before BA officially markets its centenary in August 2019, it will have unveiled its new Club World cabin and Airbus A350-1000 aircraft and introduced new catering and amenities in World Traveller Plus and First Class. There are also, as yet undefined, catering improvements planned for EuroTraveller and BA lounges.

Iberia

Iberia seems largely focused on consolidating its position in Latin America and its core markets such as Argentina, Brazil, and Chile.

There’s been no mention of further growth to Asia or exploring new opportunities in Africa.

LEVEL

LEVEL will remain a “virtual” airline using assets of other airlines in the group, such as Iberia for Barcelona.

Whilst LEVEL does have ambitions to grow substantially over the next five years, it has not announced any new bases yet for 2019. Based on comments made by Willie Walsh last month, Paris Orly seems to not have started off as quickly as Barcelona. As a new CEO has started only very recently at LEVEL, it seems to be consolidating its existing routes before announcing any more.

Vueling

Vueling is largely focused on consolidating its operation in Barcelona after a difficult summer due to Air Traffic Control disruption in Europe due to strikes in Marseille which have been a deep source of frustration to IAG.

It has recently introduced new fare types and removed its “Excellence” business class.

Avios

The one glaring omission is that there was very little mention of Avios at all.

It is known that initiatives have been underway to introduce a single Avios bank balance across IAG frequent flyer programmes and dynamic pricing of Avios rewards, but all mentions of Avios were conspicuously absent. As Avios is part of a dedicated business unit in IAG this is quite unexpected.